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Replies: 25
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Oculus Spirit [75717]
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Here is something for y'all to debate.
Dec 9, 2021, 10:29 AM
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Is it better to send extra money to a mortgage OR to take that money and put into an S&P index fund or some such.
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All-In [43680]
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Depends
Dec 9, 2021, 10:32 AM
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I mean, long term investing the money is probably the right call assuming your mortgage rate is below 5%. If keeping the money liquid is important, go this route.
If paying off your house at a certain point (like prior to retirement) is a priority, do that.
In the end, I don't think it really matters. You can use a fancy calculator to figger out what the difference really is and I don't think it would be much at all in the short term.
The end, go tigers, post tiddies.
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All-In [47817]
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No idea what your situation is, but
Dec 9, 2021, 10:32 AM
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IF you are paying PMI on your house, pay mortgage down to 80% loan-to-value first and get rid of that shit.
Loan-to-value? Ask FBCoachSC® he can explain it.
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All-In [46825]
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PMI sucks. Glad I don't have to worry about that anymore
Dec 9, 2021, 10:33 AM
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with all my 
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Oculus Spirit [83118]
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With S&P through the roof now, I'd go
Dec 9, 2021, 10:32 AM
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The other way.
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All-In [46825]
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Rock Defender [53]
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Depends on your interest rate.
Dec 9, 2021, 10:37 AM
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The other side to the coin is the benefit that comes from having something liquid in case of an emergency.
We just closed on a cash-out refinance that raised our rate by an 1/8 of a point. That's about $10k over 30 years. About 30% is sitting in savings right now for some immediate home projects. Another 30% of that we put into Series I bonds that are paying 7% interest right now. The remaining 40% went into an existing money market account. The idea being the Series I will provide solid, high rate returns for as long as the rates stay high, hedging some of the short-term risk in the markets right now, and over a longer stretch will offset the interest in pulling out equity -- all the while giving us some extra cash reserves until we move on the major home project in 5 to 8 years.
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All-In [46825]
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That's a lot of work when you can just have somebody give
Dec 9, 2021, 10:39 AM
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you half a house
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Rock Defender [53]
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u sellin?
Dec 9, 2021, 10:41 AM
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We'll take the half with the dish.
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All-In [46825]
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unfortunately I can never sell this house***
Dec 9, 2021, 10:41 AM
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Heisman Winner [135892]
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So in reality your equity is
Dec 9, 2021, 10:42 AM
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Less than zero because unlike IE you can’t leave.
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All-In [46825]
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Oh I can leave.
Dec 9, 2021, 10:48 AM
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just with half my stuff
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Oculus Spirit [81061]
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half..lulz
Dec 9, 2021, 11:22 AM
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You have kids and a wife, and someone else that gifted your wife a house.
If you left and got half of nothing you'd be winning.
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Rock Defender [53]
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Oculus Spirit [81061]
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Hall of Famer [24477]
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The results on a spreadsheet and actual behavior are not
Dec 9, 2021, 11:01 AM
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always the same. It seemed to me that people who reached age 60 in better financial shape than others of similar income had usually paid off their mortgage at the earliest possible time. One can debate whether paying off the house led to financial security, or the required discipline independently produced both. The decision to pay off the mortgage likely produces discipline and habits that lead to all sorts of things. Certainly having 10 years or more of no house payments during earning years frees a lot of investment money.
But yes, on paper paying off a mortgage is a guaranteed investment of 3% - 5%, nothing more or less. With the larger standard deduction now, paying it off is a tax free investment for most people, and that's worth something.
Would be interested in Padre's thoughts on this.
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All-In [42874]
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Personally, I put all my extra cash into beanie babies.***
Dec 9, 2021, 11:02 AM
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Hall of Famer [24477]
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For a while there you were a high net worth individual.***
Dec 9, 2021, 11:04 AM
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All-In [42874]
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Not like those idiot Hardees California Raisin collectors.***
Dec 9, 2021, 11:12 AM
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Heisman Winner [105560]
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Dang kids let my dog eat some of those the other day
Dec 9, 2021, 11:13 AM
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Looks like they will have to take out loans for college now.
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Hall of Famer [21937]
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It's a fairly simple model to build
Dec 9, 2021, 11:13 AM
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I take this approach and re-look at all my debt burdens on an annual basis and cash holding on a quarterly basis to re-assess investment allocations.
Ultimately, just take the delta of what you're going to pay off on your house and run this amount over time through a standard compound interest formula.
Use the same delta and apply it to the mortgage payment to calculate interest saved. Be sure to have a standard appreciation variable in place that you can update over time.
You may not need to necessarily make a decision and stick with it. In unfavorable market conditions, for example, you could pivot to either paying off your house more to switching the investment dollars over to bonds.
All of this is easily solvable.
But the question you have to answer is what you're solving for in your objective function, of sorts, here. Are you trying to maximize return, or are you trying to minimize debt? Once you make that decision you can tweak many different levers from a personal finance perspective to achieve your goal.
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Hall of Famer [21937]
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poor man's edit / addendum - In this current market
Dec 9, 2021, 11:17 AM
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and monetary policy there isn't really a debate. Equity markets are generating better returns on cash. As long as you minimize cash holdings in general to hedge against inflation, and have maximized your investment (relative to your comfort level) into whatever assets are available to you (likely stocks, bonds, real estate)...then you're fine.
Meaning - if you have more than 20% of your cash holdings sitting in a money market or savings account you're losing money. A lot of money. To the tune that this conversation almost doesn't make sense until you tighten up your allocation strategies.
This is just my personal opinion by spending time running numbers and building models. I am in no way shape or form a financial advisor lol.
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Oculus Spirit [75717]
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Re: poor man's edit / addendum - In this current market
Dec 9, 2021, 12:23 PM
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I do need to find other places to hide money from myself.
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Oculus Spirit [81061]
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Re: poor man's edit / addendum - In this current market
Dec 9, 2021, 12:26 PM
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I found $600 I put under some jeans in my closet last winter I had stacked in my closet that I forgot about.
I'd try that--it worked for me.
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All-In [31894]
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Risk / reward / liquidity question for me...
Dec 9, 2021, 11:26 AM
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To cut to the chase, if your goal is to pay off your house faster than the mortgage terms and assuming you have a fixed rate mortgage, I would put the extra cash you were going to pay against the principal into a savings/money market account. You won't make anything off of it, but you also won't lose any. Once you get to the point of having that built up enough to pay off the remaining principal balance, then do it.
To me, the potential reward of investing that money over time doesn't outweigh the risk of loss and liquidity advantage (without cost).
Added benefit is you have the cash building where it is easily accessible if you have an emergency, change in priorities, etc... Also, if you decide to move and it's a move up in house, then you can apply the saved amount to the new home purchase.
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CU Medallion [55747]
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In general, mortgage. But too many factors to consider.
Dec 9, 2021, 11:31 AM
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I broke up with Dave Ramsey long ago, but not having a mortgage hanging over you is a HUGE financial benefit. If you retire but are still servicing your debt, you won't live nearly as easily as you would if you retire and your passive income is all gravy.
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Replies: 25
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50
